CapitaLand Mall Trust - OCBC Investment 2016-07-25: Transformation of Funan Begins!

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CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust - TRANSFORMATION OF FUNAN BEGINS!

• 2Q16 DPU grew 1.1% YoY
• Resilient footfall and tenants’ sales
• Rental reversions remain soft

2Q16 results met our expectations

• CapitaLand Mall Trust (CMT) reported a 7.1% YoY increase for its 2Q16 gross revenue to S$170.9m, driven by the acquisition of Bedok Mall on 1 Oct 2015 and higher rental achieved for properties which had recently completed their AEIs, but partially offset by lower contribution from Funan DigitaLife Mall. 
• DPU inched up 1.1% to 2.74 S cents. Results were in-line with our expectations. 
• For 1H16, CMT’s gross revenue rose 7.3% to S$350.7m and this formed 49.1% of our FY16 forecast. DPU of 5.47 S cents represented growth of 1.5% and accounted for 48.0% of our full-year projection. 
• If we include the S$12.0m of taxable income available for distribution which was retained in 1H16 and expected to be paid out in 2H16, CMT’s adjusted DPU would have formed 51.0% of our FY16 forecast.

Occupancy, footfall and tenants’ sales remain firm

• CMT showcased its resilience by recording an increase of 3.6% YoY for its shopper traffic in 1H16, while its tenants’ sales psf per month grew 2.3%. 
• Occupancy at its malls was also stable at 97.9% (+0.2 ppt QoQ), as at 30 Jun 2016.
•  However, rental reversions remained soft, coming in at 1.7% for 1H16 (1Q16: 1.4%; FY15: 3.7%).

More details on Funan redevelopment

• CMT provided more updates on its Funan redevelopment project, whereby the property is expected to comprise three components: retail, office and serviced residences. The total estimated cost is S$560m, with a targeted completion date in 4Q19. 
• Management estimates an incremental NPI per annum of S$36.6m, which translates into a projected ROI of 6.5%. CMT intends to leverage on Funan’s location at the heart of Singapore’s Civic and Cultural District, and to bring in fresh concepts for the integrated development. 
• We lower our FY16 and FY17 DPU forecasts by 1.6% and 4.4%, respectively, as we factor in the Funan redevelopment in our assumptions. 
• However, our fair value estimate increases from S$2.10 to S$2.23, as our dividend discount model also captures the income from the completed asset in FY20, coupled with a lower risk-free rate of 2.4% (previously 3.0%) applied. 
• Maintain HOLD.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-07-25

OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 2.23 Up 2.10